15 November 2012

Peace in the Middle East

Don't laugh!Here is a short and, despite my best efforts, as yet unpublished, article on applying the Social Policy Bond principle to conflict in the Middle East.

Peace in the Middle East: giving self-interest a chance

Cards on the table: I have no solution to the anxieties and
potential catastrophes facing Israel, nor to the wider problems facing the
citizens of all the Middle Eastern countries. What I offer instead is a way of
encouraging people to find effective and efficient solutions.

Decades of negotiations and initiatives have failed. Rockets
are daily fired into Israel, we might well be on the brink of a nuclear
calamity, and the entire region is a seething cauldron of every sort of hatred:
ethnic, confessional, sectarian and gender.

Most ordinary people in the region, given time to reflect
and the freedom to express their opinions would like nothing more than to see
an end to the violence in the region. But there are enough powerful people with
a vested interest in keeping conflict going. They include men of religion, ideologues,
politicians and bureaucrats. There are also, of course, the weapons merchants and
their corrupt beneficiaries in government. Well-meaning idealists on all sides
do what they can, but their efforts are overwhelmed and relentlessly undermined
by the powerful people and institutions that want them to fail.

Peace above all

We need to give people and organizations of all kinds the incentives
to create and sustain peace, rather than conflict.We also need a verifiable definition of
peace, which will consist of a combination of conditions that have to be
satisfied and sustained. These could include:

·a much-reduced number of people killed in
conflict;

·a much-reduced level of terrorist events, or
military incursions;

·no use of nuclear weapons;

mass media incitements to violence.

We also need to focus exclusively on our goal of peace, which
might mean putting aside feelings of fairness and justice, except insofar as
they help our cause.

And we need ways of promoting peace that can modify or circumvent
people's uncooperative or obstructive behaviour; ways that can co-opt or
subsidise those people in positions of authority and power who want to help,
and at the same time bypass, distract, or otherwise undermine those opposed to
our goal.

Ideally too, we would deploy market forces. Markets are the most efficient means
yet discovered of allocating society's scarce resources, but many believe that
market forces inevitably conflict with social goals: accentuating extremes of
wealth and poverty, for example, or accelerating the degradation of the
environment. So it is important to remind ourselves that market forces can
serve public, as well as private, goals.

Middle East Peace Bonds

My suggestion is that philanthropists perhaps with governments
and other interested organisations and individuals, collectively raise a large
amount of money, put it into an escrow account, and use these funds to redeem at
some future time a new financial instrument: Middle East Peace Bonds. These would
be sold by auction for whatever they would fetch. They would be redeemed for,
say, £100 000 each only when all
the conditions for peace, as defined by the issuers, had been satisfied and
sustained.

Importantly, the issuers of the bonds would make no
assumptions as to how to bring about
greater peace. The circumstances that fan the flames of conflict vary radically
from place to place and over time. No one solution, nor even an array of
solutions will work all the time. The bonds instead will stimulate diverse,
adaptive solutions.

Nor do we need to know who
would hold the bonds or carry out peace-creating projects. Those decisions
would be made by would-be investors in the market for the bonds. Unlike normal
bonds, Middle East Peace Bonds would not bear interest and their redemption
date would be uncertain. Bondholders would gain most by ensuring that peace is
achieved quickly. As the prospects for peace brighten, the value of the bonds
will rise.

Trading the bonds

Middle East Peace Bonds, once floated, must be readily
tradable at any time until redemption. Many bond purchasers would want or need
to sell their bonds before redemption, which might be a long time in the
future. With tradability, these holders
would be able to realise any capital appreciation experienced by their holdings
of Middle East Peace Bonds whenever they choose to do so.

The bonds will be worth more to those who believe they can
do most to help reduce the violence, who will then own most of the bonds. Large
bondholders might decide to subcontract out peace-building projects to many
different agents, while they themselves held the bonds from issue to
redemption. The important point is that the bond mechanism will ensure that the
people who allocate funds have incentives to do so efficiently and to reward
successful outcomes, rather than merely pay people for undertaking activities.

Too large a number of small bondholders could probably do
little to help achieve peace by themselves. If there were many small holders,
it is likely that the value of their bonds would fall until there were
aggregation of holdings by people or institutions large enough to initiate
effective peace-building projects. As with shares in newly privatised companies
the world over, Middle East Peace Bonds would mainly end up in the hands of
large holders, be they individuals or institutions. Between them, these large
holders would probably account for the majority of the bonds. Even these bodies
might not be big enough, on their own, to achieve much without the co-operation
of other bondholders. They might also resist initiating projects until they
were assured that other holders would not be free riders. So there would be a
powerful incentive for all bondholders to co-operate
with each other to help bring about peace in the Middle East. They would
share information, trade bonds with each other and collaborate on
conflict-quelling projects. They would also set up payment systems to ensure
that people, bondholders or not, were mobilised to help build peace. Large
bondholders, in co-operation with each other, would be able to set up such
systems cost-effectively.

Regardless of who actually owns the bonds, aggregation of
holdings, and the co-operation of large bondholders, would ensure that those
who invest in the bonds are rewarded in ways that maximise their
effectiveness in bringing about peace.

So, in contrast to today’s short-term, tried, tested and
failed approaches, a Middle East Peace Bond regime would stimulate research
into finding themost cost-effective
ways of achieving peace. Indeed, bondholders would be in a better position than
governments to undertake a range of peace-building initiatives, having more freedom
to try innovative approaches. They might, for example, finance sports matches
between opposing sides, promote anti-war programmes on TV, set up exchange
schemes for students of the opposing sides. They might try to influence the
financial supporters of conflict outside the region to redirect their funding
into more positive ways. They could offer the Palestinians and the citizens of
neighbouring Arab countries different forms of aid, including education and
scientific aid, and measures aimed at providing a secular education for all Arab
citizens.

By appealing to people's self-interest, Middle East Peace Bonds would be more
effective than conventional efforts aimed at reducing violence. In channelling
market forces into the achievement of this objective the bonds could bypass or
even co-opt the corrupt or malicious people in government and elsewhere who currently
benefit from conflict.

Middle East Peace Bonds would focus on an identifiable peace outcome and
channel market efficiencies into diverse, adaptive ways of achieving it. They
might sound implausible and radical but - let’s be frank - the alternatives are
leading us into the abyss.

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Social Policy Bonds

See the Social Policy Bonds website for overviews and links to articles, papers, news and more about Social Policy Bonds. Click on the image below to download a 2400-word article, published by the Institute of Economic Affairs, London.

Social Policy Bonds in 2400 words

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Social Policy Bonds in the media

9 October 2015: An article by Greg Bearup on the genesis of the Social Policy Bond idea, and application of a version of it in Australia appears in the Weekend Australian Magazine. (The article can also be downloaded as a pdf from here.)

October 2013: Professor Robert Shiller of Yale University, is named as one of the three winners of the 2013 Nobel Prize in Economics. His Nobel Prize lecture (pdf) delivered on 8 December, mentions Social Policy Bonds. Professor Shiller has for many years encouraged my work on Social Policy Bonds, beginning in late 1996 when he sent me this letter.

3 May 2012: An audio talk by Nobel Prize winner Professor Robert Shiller at the London School of Economics, in which Social Policy Bonds are briefly mentioned, is available here.